Life on the West Island - The voice of oligopoly

It's company reporting season on the West Island and some of our largest corporations have racked up massive profits over the past 12 months, headed by more than $10 billion by the Commonwealth Bank. Ridiculously, the chief executive of the bank claimed that its huge profit would now help it to assist its customers in dealing with the reported “cost of living crisis.” Would those be the same customers who had provided the bank with record revenues and profits by being gouged on their loans and mortgages? Interest rates on those have risen at twice the rate of bank interest on depositors’ savings, while the CEO has trousered $10.4 million in cash and allowances.

Life on the West Island can only wonder just how the poor man will cope with 6% inflation, when his annual income has just risen by 48.5%. Perhaps he and his family will have to buy their clothes at the local op shop, or line up for some cheap meals at their nearest food bank? Maybe they will only undertake a three week vacation this year at a seven star resort instead of the usual four week jaunt – or perhaps it could be that the CEO is living in a parallel universe to those West Islanders struggling to feed and clothe the kids while meeting exorbitant rent or mortgage payments.

Although the West Island government is raking in a surplus of more than $20 billion this year, it is forecasting hard times ahead as the Chinese economy slows dramatically, threatening our exports of climate-changing fossil fuels. Remarkably, with near-record low unemployment and booming corporate profits, many of the so-called experts (“economists” or “doomsayers” to the rest of us) are predicting that a recession is just around the corner.

Leading the pack is the Business Council of Australia, which is demanding all of the solutions upon which it traditionally relies – basically more money for big companies and less for everyone else. Economic journalist Bernard Keane is – to put it mildly – a little sceptical about this. He writes:

The Business Council of Australia (BCA) — the oligopolists responsible for high inflation, low investment, low productivity and low wages growth — has a vision for Australia: a nation in which business pays even less tax than currently, you pay more tax, workers have lower wages and worse conditions, and businesses get to do what they like regardless of the damage they inflict on the community.

This is really the same old mantra from the BCA, which this week produced a 220-page document claiming to be a blueprint for the future of the West Island economy, which was mostly lauded by their mates in the financial media as “visionary.” Keane has a different word for it – “garbage!”

He points out that for years he and other progressive economists have reported that the agenda of “economic reform” from the BCA consists of demanding company tax cuts and industrial relations deregulation (sometimes “streamlining”, sometimes “flexibility”) so that businesses can impose even bigger real wage cuts on workers than they’ve managed in the last decade. We’ve had plenty of opportunities to say this because, despite the attention lavished on the latest report, the BCA constantly churns out this drivel.

Keane highlights that the BCA has produced numerous similar documents in recent years, all relying on the same formula: cut company taxes, lift the GST and strip away industrial relations protections. The only thing that changes is that over time the evidence mounts for why these ideas are so bad.

Take cutting company taxes. In today’s iteration, the justification is that a cut is needed to stimulate investment. Except we’ve seen what happens when a developed economy cuts company taxes. Former US president Donald Trump did it in 2017 in the US. What happened? There was no detectable impact on investment. In fact, it fell. Even the arch-neoliberals of the International Monetary Fund found no impact on investment. And what about productivity, which the BCA says will also be improved by lower company taxes? No joy there, either.

The BCA claims to be concerned that any increases in workers’ wages would light the fuse under inflation and spark the dreaded “wage/price spiral.” But in fact there is little or no evidence for this. Workers’ wages have grown in the past 12 months by an average of less than 4%, while inflation is now falling. But detailed research by the Australia Institute and several universities has shown that the biggest contributor to West Island inflation in recent years has been bloated corporate profits, particularly in industries where oligopolies exist – that is where a small handful of massive corporations dominate the market. Think of banking, grocery retailing, power generation, and airlines, to name just a few prominent examples.

And it is precisely these types of oligopolies which comprise the Business Council of Australia. Thus it is little wonder that they continually argue for economic policies which restrict competition and boost corporate profits, thereby ensuring that the rich get richer and the poor get poorer. They will tell you that it’s all about democracy and free markets, but in fact it is really rampant capitalism fed by greed and disregard for the public interest. Bernard Keane comes to some strident but obvious conclusions:

If you really wanted to lift investment, and productivity, and wages, and reduce inflation to boot, you wouldn’t cut company taxes, or deregulate industrial relations, or increase the GST. No, you’d get serious about breaking up oligopolies and reducing market concentration. It’s not surprising that the BCA is utterly silent on the real reform needed in the Australian economy.

While the BCA claims to be acting in the public interest, it is clearly the voice of the oligopolies which are milking West Islanders for as much profit as they can get away with. Reform is clearly needed – but not using the formula promoted by the BCA.